On 9 March 2015 Federal Law No. 32-FZ “On Amending Part II of the Tax Code of the Russian Federation”, dated 8 March 2015, entered into force.
The Law is aimed at softening the negative tax effect on borrowings resulting from the recent ruble devaluation and changes the interest rate thresholds for determination of a debtor’s deductible expenses and a creditor’s taxable income as well as the rules on calculation of the “controlled debt : equity” ratio for the purposes of thin capitalization restrictions.
Interest amount thresholds for controlled debt
For the purpose of calculating controlled debt which, under thin capitalization rules, may not exceed 3 times equity, the following interim rules are introduced with effect from 1 July 2014 until the end of 2015:
- the ruble equivalent of foreign-currency nominated controlled debt1 at the end of a reporting/tax period is to be calculated based on the Bank of Russia exchange rate valid at the relevant date, subject to a cap which is set at the exchange rate applicable on 1 July 2014 (RUB/USD 33.8434; RUB/EUR 46.1827);2
- the calculation of equity will now exclude any positive/negative “foreign currency exchange differences” that arise with regard to foreign-currency nominated receivables/payables after 1 July 2014.
These interim rules are applicable to controlled debt which arose before 1 October 2014.
Interest rate thresholds
The Law leaves unchanged the rule that from 2015 in uncontrolled transactions (borrowings) the actual interest rate determines the amount of the debtor’s deductible expense and taxable the creditor’s income; and introduces the following:
- with regard to controlled transactions (borrowings),3 the interest rate thresholds (currently applicable to borrowings from banks only) are extended to non-banking borrowings;
- with regard to ruble borrowings, the interest rate thresholds are softened.
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